Convertibles flat, dull outside of new deal activity

By Ronda Fears

Nashville, Tenn., Jan. 15 - Convertible traders said the secondary market continued to tread water without much direction Tuesday waiting for a strong signal from stocks, which were only slightly higher. While the market has yet to get any more details on Ford Motor Co.'s big convertible preferred deal, a couple of new deals surfaced for the week to provide a bit of a diversion. Adelphia Communications Corp. was returning to the market for the fourth time with an overnighter and Charles River Laboratories International Inc. launched a deal for Wednesday.

"Outside of the Tyco situation, there wasn't a whole lot going on. Things started picking up finally late this afternoon. It had been really dead, which had surprised most of us because we know there are a lot of new deals in the wings," said a convertible trader at a hedge fund in New Jersey. "A lot of people really sort of planned on a heavy calendar this week, but then the market kept sinking so it probably held some of these deals off."

Market players eagerly welcomed new deals as stocks lacked much steam in either direction Tuesday. The Nasdaq closed up 10.17, or 0.51%, to 2000.91 and the Dow Jones Industrial Average edged up 32.73, or 0.33%, to 9924.15.

"The new deals weren't officially launched until after the close, but we'd been hearing all day that there was something coming tonight. The Adelphia deal had been rumored for a while, like the Ford deal, but then we've been hearing that a load of new deals is coming early this year and nothing has really transpired yet," said a convertible fund manager in New York.

Nothing new was available on the Ford convertible deal, which had been expected to price midweek, but many market players have been keeping close tabs on the company's restructuring efforts.

"Given where the (Ford) stock is, it's not too surprising that they're going to wait. And, there's the Moody's review to be resolved," said a convertible trader at a hedge fund in New York. "There are a few things, like the specifics on the assets sales that we saw some of today, that need to be gotten out of the way before proceeding with this deal probably. But, then, it may be launched tomorrow."

Wednesday will bring final terms on the Adelphia deal and the pricing of the Charles River Labs deal, though. Adelphia sold $500 million of three-year mandatory convertibles with a 7.5% dividend and a conversion premium of around 17.6%, pricing the deal alongside a common stock offering. Adelphia shares dropped $1.12 to $27.25 and the 3.25% convertible notes due 2021 lost 1.125 points to 96.5 bid, 97 offered while the 6% convertible notes due 2006 dropped 1.375 to 83.875 bid, 84.375 offered.

Charles River Labs is selling $150 million of 20-year convertible senior debentures with talk of 3.5% to 4.0% yield and a 24% to 28% initial conversion premium. Credit Suisse First Boston is lead manager of the Rule 144A deal, which is set to price after Wednesday's close. Charles River Labs stock ended down 43c to $31.05.

New issues saw some nibbles, traders said, with Radian's 2.25% convertible due 2022 gaining 3.125 points on the day to 104 bid, 104.5 offered with the stock up $1.29 to $45.09. Other recently-priced paper didn't see such sharp movements, but Best Buy's 2.25% convertible due 2022 edged up 0.625 point to 100.25 bid, 100.75 offered as the shares added $1.24 to $73.70. Axcelis Technology Inc.'s 4.25% convertible due 2007, however, slipped 0.5 point to 101.5 bid, 102.5 offered with the shares off 5c to $14.74. Williams Cos. Inc.'s 9% mandatory convertible was quoted flat at 25.75 as the stock lost 42c to $24.72.

Tyco International Ltd. saw some action after reporting first-quarter earnings in line with expectations Tuesday. It wasn't of a positive tone, though, because the conglomerate also lowered its second quarter estimates citing continued weakness in its electronics segment. Tyco shares fell $4.45 to $47.95 and that put pressure on the zero-coupon convertibles. The 2020 issue lost 1.75 points to 72.75 bid, 73 offered and the 2021 issue was down 0.75 point to 72.875 bid, 73.25 offered.

There was quite a bit of activity in convertible preferred and mandatories, traders said, speculating that some positioning may be taking place in anticipation of Ford's upcoming deal, or due to the Adelphia deal. And, the results were a mixed bag. The Xerox 7.5% convert was up 1.625 points to 67.25 bid, 67.5 offered with the stock up 31c to $9.95. Northrop Grumman's 7.25% convert was very active, closing up 0.10 to 109.80 with the stock up 61c to $98.23. Prudential's 6.75% convert gained 0.60 to 54.80 as shares gained 73c to $30.78. But there was some selling in the Anthem convert, which lost 1.66 to 65.25 as the stock fell $1.20 to $50.70.

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